Arizona shoppers see the cost of food drop as grocers compete

by Max Jarman - Oct. 12, 2010 12:00 AMThe Arizona Republic

Arizona is becoming more of a shopper's market as extreme competition among supermarket chains drives down costs for consumers.

Food prices in the state dropped almost 5 percent over the past three months as grocers, battling for dollars and a larger share of the market, worked to lure shoppers with coupons, cash rebates and lower base prices.

Although prices are forecast to rise slightly before year's end, the deals likely will continue to flow as more supermarket chains enter the market.

It reported Monday that a basket of 16 grocery staples now costs $2.36 less than it did three months ago. The third-quarter drop in Arizona food prices ended two straight quarters of increases after a year of declines.

Although the market-basket cost is still 31 cents higher than the national average, the 4.8 percent drop in Arizona was more pronounced than the 2.4 percent drop seen nationwide.

"Food prices are like politics - they're local," Murphree said. "And, in Arizona, they reflect the very competitive nature of the local market."

Lately, grocers have been particularly aggressive with their deals.

Since emerging from Chapter 11 bankruptcy in late August, Bashas' has been trying to build market share by promoting its low prices; and on Oct. 6, it offered those 55 and older 10 percent off purchases of more than $15.

Fresh & Easy recently mailed out coupons for $5 off a $25 purchase.

Fry's, which offers monthly savings for seniors, is increasing the value of manufacturers' coupons to $1 as long as the coupon value doesn't exceed the price of the item.

Chains are also mining the data from their loyalty cards and sending customers coupons for products they regularly buy.

Robert Smith of Phoenix was drawn to Bashas' on Monday by a book of coupons he recently received in the mail.

"Their prices appear to be the most reasonable," he said.

Debra Sandoval of Phoenix believes she is paying less for groceries than she did a few months ago and attributed it to the crowded market.

"There is so much competition here," she said. "All the stores have so many deals."

Sandoval finds herself shopping mostly at Walmart and Fry's, but it's not because of loyalty.

"I go wherever the sales are," she said.

Andy Arrellin, also of Phoenix, has noticed the competition and sales.

"They all want to get you into their stores," he said.

There are five major grocery chains in Arizona: Fry's, Walmart Supercenters, Bashas', Safeway and Albertsons.

And there are a number of smaller players, including Target, Fresh & Easy, Walmart Neighborhood Market, Whole Foods, Trader Joe's, Sprouts and AJ's Fine Foods.

Then, there are chains such as Food City, Pro's Ranch Market and El Super that cater to the Hispanic community.

"It has to be the most competitive grocery market in the country," said Bob Kammrath, a Phoenix-based retail analyst.

It could get even more competitive next year, when Idaho grocer WinCo Foods enters the market with up to seven giant warehouse-style supermarkets.

Murphree said that the Farm Bureau's survey, although unscientific, is a solid indicator of the general direction food prices are moving.

As for the fourth quarter, Murphree believes prices could head back up again, reflecting recent increases in commodity and energy costs.

Those are the two biggest cost factors in food production.

The Arizona Farm Bureau Federation found the average cost of 16 basic food items in Arizona was $46.48 in the third quarter, down from $48.84 in the second quarter.

Consumers paid $46.02 for the same products in the third quarter of 2009 and $57.47 in the same period of 2008.

Of the 16 items, 10 decreased in price in the recently ended quarter while six increased.